Monday, 28 April 2014

Concerns over MasterCard’s role in national ID card scheme

Concerns over MasterCard International’s involvement in Nigeria’s national identity management scheme, at the expense of competent indigenous payment systems, have been further amplified by recent United States (US) sanctions against Russia, regarding the latter country’s position in the Ukrainian turmoil, industry insiders say.

As part of the sanctions, MasterCard, a global payment system, was mandated by the US government to stop serving clients of certain Russian banks related to the Russian government, whilst Visa halted operations with three more lenders.

Now, MasterCard International is expected to roll out 13 million smartcards with electronic payments (e-payments) capability for Nigerian citizens and legal residents before the end of the year, under the National Identity Management System (NIMS) managed by the National Identity Management Commission (NIMC).

The implication of MasterCard’s involvement in Nigeria’s national identity card project is that rules that the US government institute which regulate or direct American companies (like Visa and MasterCard) would automatically impact Nigeria’s own financial system. “Every international card scheme has to follow rules and regulations of their (originating) country. There is a huge risk associated in selecting MasterCard International, a foreign company, for such a critical project as the national identity managment scheme.

“If Nigeria should have a fallout with the US government, payment transaction could be blocked as part of sanctions”, said Victor Alaofin, chief executive officer, Ryte Internet Technologies, an indigenous technology company. “US sanctions against Russia justify why China decided not to partner with MasterCard International on its card scheme”, Alaofin added in an interview with BusinessDay.

“In the case of Russia, those that carry Visa and MasterCard issued by those banks would find that their cards no longer work in Russia and around the world. Just think about not being able to withdraw money from an ATM in your own country.

“Think about your card not being able to work on PoS terminals and online. People will be automatically financially excluded”, he added.

Industry insiders are however worried that Russia’s current fate could easily befall Nigeria, Africa’s largest economy, if the federal government fails to cancel the contract awarded to MasterCard International. Mastercard has a record of bowing to political decisions from Washington, most notably in blocking donations to the WikiLeaks whistleblower website.

MasterCard will roll out 13 million MasterCard-branded National Identity Smart Cards with electronic payment capability as a pilot programme. As part of the programme, in its first phase, Nigerians aged 16 years and above, as well as all residents in the country for more than two years, will get the new multipurpose identity card which has 13 applications, including MasterCard’s prepaid payment technology that will provide cardholders with the safety, convenience and reliability of electronic payments. The project will have Access Bank Plc as the pilot issuer bank for cards and Unified Payment Services Limited, as the payment processor. Other issuing banks will include United Bank for Africa, Union Bank, Zenith, Skye Bank, Unity Bank, Stanbic and FirstBank.

Nigeria, a country with an estimated 167 million people, has a tough stance on gay rights, according to industry insiders. The US has already threatened to sanction the country.

In view of all this, industry experts have called for caution in government dealings with US companies, adding further that the national ID card project is critical to national security, and as such should remain sovereign in every regard.

Government, according to them, must seek to promote its own. They also say the federal government, Nigerian banks and the Central Bank of Nigeria (CBN) should support domestic card schemes, in order to protect the nation’s soverignity.

This, according to experts, can be done through effective development and implementation of local content laws for the country’s payment systems. “Technically, MasterCard will work. There is no technology they cannot support. But it is time to grow our African giants. Why would government give an American company a project like the national identity scheme? Can the US award such a contract to a Nigerian firm?

“Should’nt government be promoting its own? Domestic card schemes should be used for things of national interest such as agriculture farmers cards, national and state ID cards to help protect our soverignity”, said a senior executive at SecureID Nigeria, who pleaded anonymity because he was not authorised to speak.

Christabel Onyejekwe, executive director at the Nigerian Inter-Bank Settlement Systems (NIBSS) however does not see anything wrong with MasterCard International’s participation in the national identity scheme. In an interview with BusinessDay, she said,”they have the competence and expertise to deliver on this national project. MasterCard have been strong collaborators in Nigeria’s card payment ecosystem. We are in a thriving global economy and MasterCard International is critical to facilitating global card payments. “

Interestingly, about 85 percent of Nigerians conduct local payment transactions. Only about 7.7 percent of Nigerians use cards abroad on foreign webistes. She acknowledged that local card schemes do possess the requisite capacity to handle the national identity project.

Industry insiders say government’s decision to award the contract to MasterCard is questionable, considering that local players in the ecosystem such as Interswitch, E-transact, 3line Nigeria and SecureID have all shown high levels of competency in processing and issuance of payment cards.

Statistics show that Verve, a local card operator controls about 60 percent of the market. In view of this, Ken Ugbechie, promoter of the Nigerian Content Advocacy Initiative (NiCADI), says it is inconceivable that such business should be given to an American company whose primary interest is to buffer their own economy.

“We know that all MasterCard’s payments processing in Nigeria are being handled competently by Interswitch, Card Technology Limited, and Unified Payments. Today, over 70 percent of bank customers in Nigeria, Africa’s most populous nation, use Verve payment cards from Interswitch, Genesis Payment cards from eTranzact and Freedom Card from 3Line Card Management Limited for their day-to-day payment transactions.

“ What then is the rationale for giving the payments transactions of our National Identity card to MasterCard, a foreign company?”, he further added in a press statement.

According to him, the combined workforce of the three Nigerian firms with competencies in payment cards, runs into over 300 highly-skilled staff, “whereas MasterCard can only boast of a handful of Nigerians working as marketing executives for the company”.

Despite the competence of local card operators, NIMC’s contractual agreement with Mastercard stipulates that local card operators cannot come on board the scheme until after the initial 13 million smartcards have been issued.

Omobola Johnson, minister of communications technology, sees this as a wrong approach, especially as it concerns growing local economies.

This is in view of the enormous potential such initiatives as the ‘Cashless economy’, spearheaded by the Central Bank of Nigeria (CBN), the national and state identity management schemes and the telecoms industry’s requirement for SIM cards are throwing up. “There are a number of local companies that have the capacity to not only produce cards, but to also personalise them. Direct interventions must be made to ensure that a significant share of this market is captured by firms operating in Nigeria, with of course the neccessary high security assurances in place,” Johnson added, in a recent presentation.

In response to the 50 question on Nigeria’s economy, posed by the House of Representatives’ committee on finance, Okonjo-Iweala, coordinating minister of the economy, said in view of set standards, MasterCard presents the best financial platform for the project. Verve Card, she added had earlier rejected the same project in 2010, claiming it was not profitable. According to her, three Nigerian companies (Auspoint Limited; E-PayPlus Limited; and Telnet Nigeria Lmited) with foreign partners, were recently cleared by the Bureau of Public Procurement (BPP) and approved by the Federal Executive Council (FCC) to produce the cards.

About four years ago, two local consortia (Chams Consortium and OneSecureCard Consortium) had signed an agreement with NIMC as front-line partners for the national ID project.

It was learnt that the structure of the transaction changed completely upon the commission securing FEC approval for N30 billion for the purchase of cards and support of nationwide rollout of operational capacity.